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US Senate Agriculture chair John Boozman has publicly acknowledged that Republican members of the committee have yet to find middle ground with their Democratic counterparts regarding several fundamental policy issues in the proposed crypto market structure legislation. This statement comes as the committee moves forward with its own legislative agenda, despite the lack of a bipartisan consensus on the primary framework. On Wednesday, the Senate panel released a Republican-authored draft of the bill, representing months of internal development and the incorporation of feedback from various industry stakeholders. Boozman noted that while differences remain, this bill builds on previous bipartisan discussion drafts and represents a significant effort to move the legislative process forward.
The release of this draft is timed ahead of a scheduled markup session set for Tuesday, Jan. 27. However, the current version of the bill does not have the support of the committee’s Democrats, underscoring a persistent divide in how the United States should approach the regulation of digital assets. The overarching goal of the proposed legislation is to create a comprehensive framework that clearly defines how cryptocurrency markets will be regulated by two primary federal agencies: the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). By establishing these boundaries, the bill seeks to provide the market with the clarity that has been lacking during recent years of regulatory uncertainty.
Context
A significant portion of the Republican draft focuses on the role of developers and the decentralized finance (DeFi) sector within the broader regulatory ecosystem. The bill includes specific protections for crypto developers, which are intended to prevent the stifling of innovation within the domestic digital asset industry. James Murphy, a prominent crypto attorney who is recognized online by the pseudonym “MetaLawMan,” has analyzed the draft and highlighted its specific approach to decentralized protocols. According to Murphy, the bill creates a distinct path for the DeFi sector to steer clear of regulation by the Commodity Futures Trading Commission (CFTC).
This path is established by providing explicit protections for DeFi software developers and certain service providers. Under the proposed rules, these entities would be shielded from liability under existing CFTC rules and regulations. This distinction is vital for the industry, as it attempts to separate the creators of open-source software from the intermediaries who facilitate custodial trading. By offering these protections, the bill aims to ensure that the development of decentralized technology can continue without the threat of legal repercussions that are typically reserved for centralized financial institutions and intermediaries who exercise direct control over user funds. These provisions represent a concerted effort to address the unique technical nature of decentralized protocols while maintaining a focus on consumer protection through the regulation of centralized entities.
Impact
The Digital Commodity Intermediaries Act, as detailed in the Republican draft, establishes clear boundaries for what is and is not subject to federal oversight. Bill Hughes, a lawyer at the Ethereum software solutions provider Consensys, has elaborated on the bill’s specific limitations. According to Hughes, the act focuses squarely on intermediaries rather than on the underlying protocols or the individual users who interact with them. Notably, the legislation does not regulate self-custody wallets, nor does it attempt to regulate non-custodial DeFi interfaces. These exclusions represent a significant win for proponents of financial privacy and decentralization, as they protect the tools used for personal asset management.
Instead of a broad-brush approach, the bill directs its regulatory focus toward any platform that takes custody of assets or controls the execution of trades. This ensures that the Commodity Futures Trading Commission and other regulators can oversee the entities that pose the greatest risk to consumer funds. Furthermore, the bill omits any regulation regarding stablecoin yield. This omission is strategic, as the regulation of yield-bearing products is considered to fit under the jurisdiction of the Senate Banking Committee. By adhering to these jurisdictional boundaries, the Agriculture Committee’s draft avoids overlapping with other legislative efforts while concentrating on the market structure for digital commodities and the intermediaries who facilitate their exchange. The focus remains on platforms that handle execution and custody, which are the primary points of systemic risk.
Outlook
The immediate future for this legislation centers on the upcoming markup session scheduled for Tuesday, Jan. 27. While Senator Boozman has expressed a desire to move the bill forward, the lack of Democratic support poses a significant hurdle for its eventual passage through the full Senate. The Republican draft builds on previous bipartisan discussion drafts and incorporates months of work, yet the remaining differences on fundamental policy issues suggest that the path forward remains complex. The committee chair has noted that while it is unfortunate an agreement could not be reached prior to this stage, the collaboration thus far has served to improve the quality of the legislation.
In addition to the hurdles within the Agriculture Committee, the broader legislative timeline for crypto market structure may be shifting. Reports indicate a potential delay for the Senate Banking Committee’s version of the crypto bill, with its release possibly being pushed back to February or March. This delay could impact the momentum of the Agriculture Committee’s efforts, as both pieces of legislation are critical components of a unified regulatory framework for the United States. As the Jan. 27 markup approaches, the industry will be watching closely to see if any bipartisan compromises emerge or if the partisan divide continues to stall the progress of comprehensive federal crypto oversight. The timing of the Banking Committee’s bill will also be a key factor in determining when a full market structure framework might realistically be enacted.
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